David's New Book

Saturday, April 8, 2017

Push or Pull?

The Infectious Diseases Society is waxing enthusiastic over the READI bill being introduced in Congress. The Reinvigorating Antibiotic and Diagnostic Innovation (READI) Act, H.R. 1840, would provide a 50% tax credit for research and development costs involved in bringing new therapeutics and diagnostics targeting bacterial infections to the marketplace. This is similar to the regulations already in place for orphan drugs. While no one should complain about additional funding for these laudable goals, my enthusiasm is more tempered.

The READI Act is a “push” incentive. It reduces the upfront expense of research and development and therefore lowers the revenue required in the marketplace to achieve a return on investment. I see two speed bumps here. The costs eligible for the tax credit would be specific for the drug or diagnostic being developed. But the greater cost for companies is that for all the failures that never make it. In the case of small molecule antibiotics, probably less than 5% ever make from their discovery in the laboratory all the way to market. Even once they start their trials in the clinic, maybe 70-80% will still fail. So you can see that the costs of these failures could be substantial.

The other problem is one of competition. Who would have ever thought that we would find ourselves in a situation where there is an abundance of funding available for antibiotic research? But that is clearly the case today. We have BARDA, CARB-X, the Wellcome Trust, the Innovative Medicines Initiative in addition to private money now being directed at antibiotic and diagnostics research. We also have free services such as those offered by NIH for many aspects of antibiotic research. Would an additional tax credit help? Sure. Will it make the difference between a company pursuing antibiotic research or cancer research? Probably not.

What will it take to bring more companies into antibiotic R&D? Pull incentives! This is a topic I have explored several times – but repetition in a new context may be helpful. By “pull” incentives I mean those that are applied post-approval to supplement a poor market demand. If there is any economic problem that haunts antibiotic research, none is more important than that of market failure.

The antibiotic market failure can only be partially solved by the entry of small companies to the field. The advantage of the small company is that the revenues required for them to survive and even thrive are much smaller than what is required of large pharma. Therefore, the market hurdle is lower. One disadvantage of small companies is that even with funding for the very expensive late stage trials, they will be challenged by establishing their product in the global marketplace. Another challenge is that they frequently pursue a single product. If that product fails (more likely than not), the company cannot survive. Finally, small companies still frequently depend on the deeper pockets of large pharma to purchase or license or at least to participate in the development and marketing of their product in order to survive and provide a return on their investment. So we need large pharma players – and today we are seriously lacking on that front.

A large pull incentive such as I have reviewed previously is required. This could be a large market entry award of, say $2 billion (could be spread over several years and have milestones attached). It could be the upfront purchase of a new product for a national stockpile as insurance for a greater need in the future. It could be a patent voucher that a company could use to get a longer period of exclusivity on a product of their choice with a cap of say $2 billion in extra revenue. Any of these as well as other models would work, I am certain, to bring additional companies into or back into antibiotic R&D.

Without such a pull incentive, I fear we are reaching the end for additional benefit from push incentives such as the one contemplated by READI.